Perth cbd office market research forecast report h2 2012 final

PERTH CBD OffiCE ReseaRch & FoRecast RepoRt

www.colliers.com.au/research

Historically High Supply, Historically High Net AbsorptionThe Perth office market has continued to outperform all other major Australian capital cities in the first half of 2012. On top of this, the delivery and occupation of two recently-completed buildings, together with strong demand, has resulted in a record net absorption.

According to the latest Property Council of Australia (PCA) survey, net absorption increased to 115,503m2 in the six months to June 30, 2012. This has been instrumental in keeping the Perth vacancy rate tight, despite the historically high new gross supply of 157,926m2. The vacancy rate at the end of June 2012 was 4.2% according to the PCA survey, up from 3.3% in January 2012. The current (June) level of office vacancy in the CBD, according to the PCA, is 66,902m2 – however, actual availability of space is lower than this figure.

Investment-led economic activity in WA has persisted, despite a reported slowing of economic growth in China and a recession-hit European Union, where German economic activity seems to also be slowing.

Perth’s CBD office market has been resilient in the face of poor global economic conditions and sentiment. The key driver behind this resilience has been the spatial demands of project space and support services, contingent on the current capital expenditure programs of projects such as Gorgon and Wheatstone. Rents in the CBD are now nearing the peak levels seen in 2008, and average rents are expected to overtake those peak 2008 levels during the fourth quarter of 2012 should demand continue to be strong.

There is now clearly a two-tier office rental market in place in Perth, with premium rents being obtained for short-term available space compared to medium-long term design and construct space, where asking rents are softer.

Premium Grade space vacancy was 1.2% in June 2012, according to the PCA survey. This has driven Premium rents to between $765/m2 and $920/m2 in the June 2012 quarter, with A Grade rents increasing to between $700/m2 and $805/m2.

First half 2012 investment transactions were minimal compared to the first half of the 2011. As of June 2012, three major transactions had been completed at a total value of $140.05 million.

MaRket IndIcatoRs FoRecast - 6 Months

oveRall peRFoRMance

new supply

tenant deMand

vacancy

avaIlaBIlIty*

IncentIves

Face Rents

eFFectIve Rents

capItal values

yIelds

SECOND HALF 2012 | OFFICE

St Georges Square225 St Georges Terrace, Perth50% share sold to Charter Hall in March 2012 for $96 million, initial yield was 8.86% with capital value of $9,048/m2.

key hIghlIghts

peRth cBd oFFIce MaRket IndIcatoRs

grade average net Face Rents ($/m2 pa)

average Incentives (%)

average outgoings($/m2 pa)

average capital Values ($/m2)

average Market yield* (%)

low hIgh low hIgh low hIgh low hIgh

premium $765 $920 0% 10% $165 $9,450 $10,750 7.50% 8.50%

a grade $700 $805 0% 10% $155 $8,500 $9,750 8.00% 8.50%

B grade $545 $605 0% 10% $140 $5,875 $7,250 8.50% 9.50%

*Equivalent Reversionary YieldData correct as of June 2012Source: Colliers International Research

* Technical vacancy measures may differ from actual availabilities.

Core CBD vacancy increase to 3.8% Rents approaching historical high on abnormally strong net absorptionHistorically strong supply in 2012, most has been absorbedNew supply cycle eminent but still two years away from delivery

stRong Q1 2012 gdp ResultThe March Quarter 2012 Australian Bureau of Statistics (ABS) Gross Domestic Product (GDP) data showed robust growth for the Australian economy during the quarter. In seasonally adjusted terms, GDP increased 1.3% during Q1 2012, up from 0.6% in Q4 2011, taking through-the-year GDP growth to a strong 4.3% – the largest annual result since September 2007.

The main contributors to expenditure on GDP during the quarter were household final consumption (0.9 percentage points) and private gross fixed capital formation (0.8 percentage points), while net exports detracted 0.5 percentage points. The main industry contributors to GDP were mining (up 2.3%), financial and insurance services (up 1.7%) and professional, scientific and technical services (up 2.8%).

eMployMent ReMaIns tIghtThe July 2012 monthly ABS Labour Force data shows the Australian employment market continues to remain tight. The latest results showed the unemployment rate declined by 0.1 percentage point, from a revised 5.3% in June to 5.2% in July 2012. This saw total employment increase by 14,000 persons, with both full-time employment (up 9,200 persons) and part-time employment (up 4,800 persons) increasing during the month.

InFlatIon Rate ReMaIns lowThe latest inflation data from the ABS shows annual headline inflation rose just 1.2% during the 12 months to June 2012, down compared with a rise of 1.6% through the year to March 2012. This saw the Consumer Price Index (CPI) grow by 0.5% during the quarter, and ensures that the inflation rate remains well below the Reserve Bank of Australia’s target range of 2% to 3%. Underlying inflation was also contained, increasing by 0.6% during Q2 2012, taking annual growth to 1.9%.

cash Rate ReMaIns staBleFollowing a reduction of 50 and 25 basis points in May and June 2012 respectively, the RBA decided to keep the official cash rate stable at 3.5% during both their July and August monthly board meetings. The RBA judged that “with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate”.

austRalIan dollaR soFtensOngoing uncertainty over European sovereign debt issues has continued to fuel concerns regarding the global economic outlook. When combined with the slow pace of economic recovery in the United States, this uncertainty saw the Australian Dollar reach a record high in late July 2011, trading at $US1.10 before slipping below parity in December 2011. After regaining value during Q1 2012, trading as high as $US1.08, the Australian Dollar fell below parity in May 2012 due to a flight by investors to safe haven assets as election results in Greece and France further clouded the outlook for the European economy. This has seen the Australian dollar recently trading between $US0.98 and $US1.05.

westeRn austRalIaThe latest economic statistics released by the ABS indicated WA state final demand grew a seasonally adjusted 7.8% over the March 2012 quarter. The State Government Budget for 2012/13 has forecast GSP growth of 6.0% for 2011/12 and 4.75% for 2012/13. Deloitte Access Economics is forecasting a slight moderation in WA’s growth rate to 4.6 % in 2012/13, down 0.3% from 2011/12 with growth projected to average just under 4.3% out to 2016/17. This is still well in excess of national GDP forecasts. WA’s Private Capital Expenditure remains driven by the mining sector, with total mining sector spending increasing over the March 2012 quarter to $10.764 billion – up from $10.452 billion in the December 2011 quarter. This increase was offset by a contraction in the manufacturing and other sectors, which led to total spending falling marginally to $13.225 billion from $13.395 billion.

Given the range of projects already underway and those either mooted or under consideration, the outlook for WA, according to Deloitte Access Economics, is good.

Economic Update

QV1250 St Georges Terrace, PerthVodafone Hutchinson have renewed their lease at QV1 on level 18 for a rate of $920/m2.

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rESEArCH & FOrECAST rEPOrT | SECOND HALF 2012 | OFFICE | PERTH CBD

108 St Georges Terrace, PerthRio Tinto have sub-leased 5 of the floors vacated by Bankwest which expires at the end of 2014.

Employment Trends and Leasing Demand

wa peRManent eMployMent eXpectatIons By IndustRy

whIte collaR eMployMentAccording to Deloitte Access Economics, white collar employment grew just under 2.3% in the first half of 2012 on continued strong State economic conditions. Going forward, growth over the next six months is expected to moderate slightly to around 1.3%, however economic conditions are forecast to remain robust in WA despite difficulties in external economies. The high net absorption forecast for 2012 below is the result of the delivery of two major buildings, which are mostly committed, together with very strong levels of demand.

peRth whIte collaR eMployMent gRowth v net aBsoRptIon

Source: Deloitte Access Economics, PCA, Colliers International Research

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Whit

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Net A

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6 Mth Net Absorption Perth CBD & West Perth White Collar Employment Growth

Forecast

west austRalIan eMployMent condItIons stRongUnsurprisingly, WA remains at the forefront of the country’s economic performance, with the major drivers continuing to be energy, minerals and the infrastructure development required to capitalise on the State’s comparative advantage.

Resource industry reports of increasing project development and operating costs may begin to put something of a brake on industry investment and hence hiring intentions over the medium term, but for the present and the near term hiring intentions are robust. Six-monthly CBD and West Perth employment forecasts by Deloitte Access Economics suggest continuing growth in total white collar employment.

The industry sectors forecast likely to expand the most over the rest of 2012 include Rental, Hiring and Real Estate Services and Financial and Insurance Services. Of the larger sectoral employment bases, Professional, Scientific and Technical Services and Mining remain buoyant, however there may be a slight contraction in Public Administration and Safety

-8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12%

Information Media and Telecommunications (2,170)

Transport, Postal and Warehousing (798)

Construction (2,715)

Arts and Recreation Services (347)

Public Administration and Safety (18,253)

Wholesale Trade (1,556)

Retail Trade (4,868)

Professional, Scientific and Technical Services (24,505)

Accommodation and Food Services (4,847)

Education and Training (2,064)

Health Care and Social Assistance (9,733)

Manufacturing (1,463)

Administrative and Support Services (5,940)

Electricity, Gas, Water and Waste Services (1,310)

Other Services (1,892)

Agriculture and mining (11,867)

Financial and Insurance Services (14,507)

Rental, Hiring and Real Estate Services (3,217)

Total White collar (112,052)

6 Month Growth Historical & Forecast

Jun-12 Dec-12

peRth cBd & west peRth whIte collaR eMployMent

Source: Deloitte Access Economics, Analysed by Colliers International Research


research & forecast report | SECOND HALF 2012 | OFFICE | PERTH CBD

Source: Colliers International Research

Supply

peRth cBd oFFIce supply

2011 2012 2013 2014 2015 Mooted

perth cBd supply (m²) 13,394 162,236 8,584 57,338 105,719 207,286

pre-committed space (%) 76.7% 95.3% 0.0% 11.3% 28.6% 0.0%

• The recent coinciding completion of Brookfield Place, Bankwest Place and 181 Adelaide Terrace, together with the completion of several smaller projects and refurbishments in the first half of 2012, has resulted in an historically high supply addition to the Perth CBD office market in the first half of 2012 following weak supply levels in 2011.

• Total stock additions, including refurbishments and minor new completions for the CBD, totaled 157,926m2 of space, the large portion (77%) of which was from Brookfield Place and Bankwest Place. In these two buildings 100% of the space was pre-committed with only a small amount of sublease space remaining available, which was the key reason behind the historically high net absorption.

• The current supply pipeline consists of mostly refurbished space, with a small new building under construction in the western periphery of the CBD, totaling approximately 17,852m2. Other than this, there is no other new supply under construction. As a result, Colliers International is projecting minimal new supply in the next two years.


• Colliers International expects a new supply cycle is imminent as a result of recent high net absorption, expected demand levels and a low vacancy rate. A number of major buildings are proposed and likely to start construction in late 2012 or early 2013, with the first of these buildings scheduled for Q3 2014 delivery.

• Several new projects, ranging in size between 3,500m2 and 30,000m2, are currently actively seeking tenant pre-commits prior to commencement of construction. However, 1008 Hay Street is under construction and the owners of 253 St Georges Terrace are understood to be proceeding with this development on a speculative basis. The previously withdrawn May Holman Centre (14,895m2) is to be refurbished and is also seeking pre-commitment. The current pipeline consists of a number of refurbishments that are under construction, all of which are expected to be delivered in the over the next six to 12 months. A notable project, whilst not technically in the CBD, is the Workzone development at 202 Pier Street. The development will provide 27,000m2 of supply, of which 20,500m2 has already been leased. Surplus space of 6,500m2 is expected to become available from Q3 of 2013.

Brookfield Place125 St Georges Terrace, PerthBrookfield Place was recently completed and all 76,000m2 of space was pre-committed or leased on completion, and BHP Billiton is the anchor tenant.

peRth cBd oFFIce supply

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Uncommitted New Committed New Uncommitted Refurbishment Committed Refurbishment

2011

Completed 160,268sq m

20132012

Under Construction 17,852sq m

Mooted 207,286sq m

20152014

Proposed 169,691sq m




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peRth cBd Recently coMpleted and pRojects undeR constRuctIon

address new Building Office NLA (m2)

RefurbishmentOffice Area (m2) status Year of

completion% pre -

committedowner /

developer

108 St Georges Terrace - 5,834 Completed 2011 100% Stockland/Brookfield

Equus580 Hay Street

8,100 - Completed 2011 60% Birchwood Consolidated Pty Ltd

Allendale Square 77 St Georges Terrace

4,300 Completed 2012 80%GE Real Estate Investments Australia Pty Ltd

507 Murray Street 2,700 - Completed 2012 84% Judd Projects

Albert Facey House 469 Wellington Street

9,343 Completed 2012 100% WA Government

181 Adelaide Terrace 6,991 - Completed 2012 89% Finbar

Bankwest Place 111 William Street 42,500 - Completed 2012 100% Saracen Properties

Brookfield Place 125 St Georges Terrace 74,500 - Completed 2012 100% Brookfield

Brookfield Place, Heritage Blds 125 St Georges Terrace

- 6,000 Completed 2012 100% Brookfield

88 William Street - 5,758 U/C 2012 74%Winston Holdings Pty Ltd & Ayoman Pty Ltd

197 St Georges Terrace - 2,567 U/C 2012 67% GDI

5 Mill Street - Stage 1 - 4,229 U/C 2012 73% GDI

Total - Recently Completed 160,268

Total - Under Construction 17,852

peRth cBd pRoposed & Mooted pRojects

address

new Building Office

nla (m2)

RefurbishmentOffice Area (m2) status Year of

completion% pre-

committedowner /

developer

1 Mill Street 6,234 Proposed 2013 0% GDI

Public Trustee Building

55 Hay Street- 6,500 Proposed 2014 100% Mirvac

863 Hay Street 10,947 - Proposed 2014 0% The Perth Diocesan Trustees

999 Hay Street 10,200 Proposed 2014 0% Qube

950 Hay Street 11,219 - Proposed 2014 0% Oaksfield Pty Ltd

Old May Holman Centre 32 St Georges Tce

- 14,895 Proposed 2014 0% Crownbase Capital Pty Ltd

Veil 253253 St Georges Tce

3,577 - Proposed 2014 0% Primewest

Kings Square Building 1 Wellington St (Former PEC Site)

17,500 - Proposed 2015 0% Seven Group Holdings/Leighton

396 Murray Street 28,000 - Proposed 2015 0% Diploma/ Saracen

Old Treasury 28 Barrack St

30,219 - Proposed 2015 100% Mirvac

Brookfield Place Stage 2 123 St Georges Terrace

30,000 - Proposed 2015 0% Brookfield

Waterfront (Potential Space) Perth Waterfront

70,000 - Mooted Mooted 0% N/A

Kings Square Wellington St (Former PEC Site)

62,500 - Mooted Mooted 0% Seven Group Holdings/Leighton

Former ABC Site 187-193 Adelaide Terrace

12,874 - Mooted Mooted 0% Finbar/Ventrade

Total - Proposed (m²) 169,691

Total - Mooted (m²) 207,286

Perth CBD Recently Completed/Under Construction





pRecInct/gRade total MaRket cBd west cBd east cBd noRth

stock (m²)

vacancy (%)

stock (m²)

vacancy (%)

stock (m²)

vacancy (%)

stock (m²)

vacancy (%)

total - all grades 1,577,409 4.2% 1,014,502 3.8% 282,551 5.4% 280,356 4.8%

premium 322,722 1.3% 279,722 0.9% 0 n/a 43,000 4.0%

a grade 600,381 4.0% 415,271 5.6% 99,040 0.7% 86,070 0.0%

B grade 437,237 5.9% 281,213 3.8% 108,347 9.4% 47,677 10.6%

c grade 208,147 6.1% 36,857 4.7% 75,164 5.8% 96,126 6.9%

d grade 8,922 1.0% 1,439 0.0% 0 n/a 7,483 1.2%

Source: PCA July 2012/ Colliers International Research

• The vacancy rate remains tight in the Perth CBD in the first half of 2012, but the square metreage of total office space has increased by 9.2% to 1,577,409m2 in the six months to June 30.

• Total office space vacancy in the first half of 2012 eased to 4.2% (as at June 2012 - PCA). However, actual availability of space is lower than this.

• Premium Grade space vacancy increased from 0.1% to 1.3% in June 2012, but remains critically low.

Vacancy peRth cBd – stock & vacancy By pRecInct & gRade

Central Park152 St Georges Terrace, PerthBHP leased level 16 with an area of 1,500m2 in this building for five years at an estimated $800/m2. delays and stRong deMand ReducIng avaIlaBIlIty

Source: PCA/ Colliers International Research

peRth cBd total oFFIce MaRket vacancy Rate peRth cBd vacancy By gRade

• A two-tiered market, as previously reported, continues to be evident with the CBD West sector vacancy level notably lower than other divisions of the CBD at 3.8%. Vacancy in the CBD East-precinct increased slightly from 4.7% in the previous period to 5.4% in June, but CBD north tightened 2.1 percentage points despite a 15% increase in stock. This was a result of Bankwest Place being added into the mix as 100% occupied.

• There was a notable increase in A Grade vacant space of 2.6 percentage points to 4.0%.

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ncy

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Jul-11 Jan-12 Jul-12

Source: PCA/ Colliers International Research

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Vac

ancy

Rat

e (%

)

Vacancy Rate 10 Year Historical Average

Forecast

17.6%




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peRth cBd aveRage net Face Rents

Rents and Incentives

• Since December 2011 incentives have remained static, reflecting low stock levels and low vacancies. While there has been some easing in stock and vacancies over the last six months, in relative terms this has not been big enough to drive major changes in incentives. The six month forecast indicates no substantive change in this area.

• One of the drivers for incentives at present appears to be the reluctance of banks to free up capital. This means that prospective tenants have limited capacity to fund their own fit-out, thus creating a barrier to the take-up of long-term tenancies. Incentives of 15% on a ten-year lease effectively allow tenants to fund fit-out costs.

peRth cBd aveRage IncentIve Range

grade Jun-11 Mar-12 Jun-12 6-month ForecastLOW HIGH LOW HIGH LOW HIGH

premium 5% 10% 0% 10% 0% 10%

a grade 5% 15% 0% 10% 0% 10%

B grade 10% 15% 0% 10% 0% 10%

cuRRent IncentIve levels & FoRecasts – Q2 2012


IncentIves MInIMal and optIons ReMaIn lIMIted

Rents stIll MovIng upwaRd• According to Deloitte Access Economics

CBD employment figures, Perth CBD white collar employment is expected to grow by an additional 1.3% between June and December this year following a forecast 1.6% increase in the first six months of 2012. This will result in an additional 3,204 white collar workers in the CBD by year’s end.

• This recovery in growth is expected to result in continued solid levels of absorption in the second half of 2012 and 2013, which in combination with minimal stock additions during the year will maintain upward pressure on rents for available stock.

• Premium rents have recovered most of the ground lost in the aftermath of the 2008

GFC, when global concerns led to a slowing in demand and a temporary pull-back in business expansions. Premium net rents are now averaging $843/m2, with A Grade net rents averaging $753/m2.

• The squeeze on Premium and A Grade space means that demand for B Grade space is rising, and while it is unlikely that A and B Grade rents will converge, there is the distinct possibility that average B Grade net rents will approach $700/m2 in early to mid-2013. Rents in B Grade space are in fact tipped to rise more sharply than Premium and A Grade rents, as the limited availability of this space pushes tenants towards B Grade office space.

251 St Georges Terrace, PerthCB & I and Momentum Engineering have taken a total of 2,370m2 space for 5 and 7 years respectively at a rate of approximately $740/m2.



Investment Market ActivityposItIve staRt FoR tRansactIons In 2012• Major transactions ($10 million-plus) in the year

to June 2012 exceeded $956 million, however more than 85% of the total value of transactions occurred in the six months to December 2011. Since then, transactions totaling just over $140 million in the six months to June this year have occurred. The volume of transactions this year has come off from the previous high base of 2011 with purchasers in this period dominated by institutional investors.

• Major transactions this year have included a 50% sale of 225 St George’s Terrace by the Wyllie Group to Charter Hall for $96 million, 255 & 267 St Georges Terrace for $27.6 million and 41 St George’s Terrace to Wakefield Properties for $16.45 million. Interest however remains strong, with over $250 million in deals currently in conditional due diligence.

• Capital values remained stable, between $9,450/m2 and $10,750/m2 for Premium grade assets. A Grade values have ranged between

$8,500/m2 and $9,750/m2 and B Grade between approximately $5,875/m2 and $7,250/m2.

• The strong transaction level in 2011 came amid increasing interest in the Perth market from both foreign and local institutions, and the need by some owners to reweight their exposure to the commercial office market. The State’s continuing strong office rental market, underpinned by its resources sector, attracted institutions seeking to gain exposure on forecasts of continuing good investment returns.

• Despite a drop in interest rates, market capital yields have remained static since the March quarter for Premium assets, at between 7.5% and 8.5%. A Grade yields remained stable at between 8.0% and 8.75% through 2011.

peRth cBd aveRage yIeld Range

grade Jun-11 Mar-12 Jun-12 12 Month Yield ChangeLOW HIGH LOW HIGH LOW HIGH

premium 7.25%-8.25% 7.5%-8.5% 7.5%-8.5% +25 basis points

a grade 8.0%-8.5% 8.0%-8.5% 8.0%-8.5% 0 basis points

B grade 8.5%-9.5% 8.5%-9.0% 8.5%-9.0% 0 basis points


peRth cBd a-gRade yIeld Range


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255 & 267 St Georges Terrace, PerthStockland sold these two properties to Primewest for $27.6m, which represented a yield 10.34%.




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InvestMent sales MaRket actIvIty

sales and InvestMent actIvIty

Building saledate

netlettable

area (m2)

saleprice yield # capital value

($/m2) vendor purchaser

255 & 267 St Georges Terrace, Perth Jun-12 4,075 $26,700,000 10.34% $13,104 Stockland Primewest

St George’s Square, 255 St Georges Terrace, Perth (50%)

Mar-12 21,221 $96,000,000 8.86% $9,048 Wylie Group Charter Hall

41 St Georges Terrace, Perth Jan-12 2,800 $16,450,000 n/a $5,875 Conisborough Pty Ltd Wakefield Properties Pty Ltd

Exchange Plaza, 2 The Esplanade, Perth (50%) Dec-11 34,396 $157,700,000 7.32% $9,170 StocklandAMP Capital Wholesale Office Fund

QV1, 250 St Georges Terrace, Perth (50%) Sep-11 63,887 $310,000,000 7.05% $9,705SAS Trustee Corporation (Dexus)

Eureka Capital

251 St Georges Terrace, Perth Aug-11 9,745 $61,300,000 10.72% $6,290 Private Investor Primewest

226 Adelaide Terrace, Perth Jul-11 14,459 $103,500,000 8.44% $7,158 First StateMotor Accident Commission of South Australia

Governor Stirling Tower, 197 St Georges Terrace Perth

Jul-11 39,721 $152,000,000 11.80% $3,827Commonwealth Property Office Fund

GDI

Bankwest Tower, 108 St Georges Terrace, Perth (50%)

Jun-11 39,415 $130,000,000 8.35% $6,694 Stockland Brookfield

** Estimated price# Yield quoted is initial yields

InvestMent sales MaRket actIvIty

leasIng actIvIty

Building level startdate area (m2)

term(years)

starting Rent (Net $/m2) lease type lessee

London House, 216 St Georges Terrace, Perth 12 Jul-12 586 4 $725 New Lease Chevron

Australia Place, 15-17 William Street, Perth 8 Jul-12 1,228 5 $685 New Lease McDermott Australia

BGC Centre, 28 The Esplanade, Perth Ground Oct-12 400 5 $608 New Lease Undisclosed

QV1, 250 St Georges Terrace, Perth 33 & 34-36 Apr-12 6,234 10 $875 Renewal/ Extension Freehills

Central Park, 152-158 St Georges Terrace, Perth 16 Jul-12 1,543 5 $800 New Lease BHP Billiton

251 St Georges Terrace, Perth 7 Jul-12 1,167 5 $740 New Lease CB & I

251 St Georges Terrace, Perth 8 Jul-12 1,204 7 $740 New Lease Monumentum Engineering

Exchange Plaza, 2 The Esplanade, Perth Pt 21 Jul-12 373 5 $860 Renewal/ Extension Tokyo Gas

QV1, 250 St Georges Terrace, Perth Pt 18 Aug-12 546 1 $920 Renewal/ Extension Vodafone Hutchinson

10 William Street, Perth 5, 6 & 7 May-12 1,177 5 $550 New Lease Zettaserve

St Georges Square, 225 St Georges Terrace, Perth

3 Apr-12 925 7 $685 New Lease Bendigo Bank





-4

-2

0

2

4

6

8

10

-20

-10

0

10

20

30

40

50

Mar

-06

Jun-

06

Sep-

06

Dec-

06

Mar

-07

Jun-

07

Sep-

07

Dec-

07

Mar

-08

Jun-

08

Sep-

08

Dec-

08

Mar

-09

Jun-

09

Sep-

09

Dec-

09

Mar

-10

Jun-

10

Sep-

10

Dec-

10

Mar

-11

Jun-

11

Sep-

11

Dec-

11

Mar

-12

(Inco

me -

Rollin

g Ann

ual %

/pa)

(Cap

ital -

Rollin

g Ann

ual %

pa)

Capital Return Income Return

Investment Analytics

• Investment activity in 2012 has been dominated by institutional investors , albeit off a low base of transactions. The high level of activity in 2011 by institutional investors has carried through to 2012 as rents continued to increase and the office space demand outlook remains positive based on the resource sector investment spending pipeline.

• Colliers International continues to field regular enquiries from investors across all categories interested in establishing or expanding their presence in the robust WA commercial property market.

Source: IPD/Colliers International Research

peRth cBd a gRade oFFIce RetuRns

Source: Landgate/Colliers International Research

peRth cBd InvestMent sales By BuyeR type

peRth capItal RetuRns stRongest aMong natIonal capItals

13%20%

20%50%

25%

63%

20%

50%

56%

67%

25%

40%

19%

33%

2008 2009 2010 2011 2012

PrivateInstitutionForeignCorporate

41 St Georges Terrace, PerthSold in January 2012 to Wakefield Properties for $16.45m that resulted in a capital value of $5,875/m2.



OutlookThe June 2012 Business Outlook by Deloitte Access Economics suggests that global uncertainty notwithstanding, the outlook for WA remains positive. This sanguine view of the State’s prospects comes on the back of ongoing demand for resources, and most importantly a durable demand for energy, and the range of committed projects which are likely to provide WA with a buffer against global uncertainty for at least the next two years.

In recent times, there have been some rumblings by the resource sector about the development and operating cost environment in WA, with the implication that Australia is becoming an increasingly expensive location for resource companies in which to operate. Whether or not these reservations by the resource sector translate into a negative impact on investment and hiring intentions over the medium term is yet to be played out.

Recent forecast revisions by the World Bank on global economic growth – down to 2.5% from 3.6% - may also dampen confidence levels. Western Australian economic conditions remain tightly linked to China’s, and with leadership changes scheduled for the latter part of 2012 there is strong impetus to maintain economic growth in the country. This is likely to underpin strong export levels for Western Australian resources in 2012.

WA’s investment pipeline looks likely to remain strong out to 2015; this is expected to keep unemployment low and demand for labour relatively strong in this period. As a result, Colliers International Research is expecting demand levels for the rest of 2012 to remain buoyant.

Whilst a two-speed economy is likely to remain in play, the Perth CBD office market has and will remain driven by resource sector conditions, and Colliers International is forecasting effective rents to grow through the remainder of 2012 and 2013 as vacancies remain tight.

The strong supply level in 2012 of approximately 157,926m2 has seen vacancy increase to 4.2% in July. This has largely been created by the availability of backfill space at 108 St Georges Tce and 197 St Georges Tce, following the refurbishment. However, Colliers International believes this is likely to be countered by demand levels, driving vacancy back to mid-three percent by July 2013.

Colliers International’s research has identified a number of new buildings seeking pre-commitment, and a series of proposed developments that may produce supply options from 2014. Whilst decisions on pre-committing have so far been delayed by a number of tenants, we are expecting that by the end of 2012 at least two to three new CBD buildings will have sufficient pre-commitment to proceed.

Strong short-term resource sector investment spending is flowing into mining-related service businesses as major projects are granted approval and construction commences; and this will maintain pressure on office space demand in the CBD for the short to medium term. However, should events occur to significantly affect the level of investment spending or commencement of these major projects softer demand could result and potential for an increase in sublease space or assignment of leases.

2011 was a major year for investment sales, and 2012 has so far seen yields remain stable. The strong State economy has brought about renewed foreign and institutional buyer interest. However, global credit conditions and economic volatility could affect transactional activity and buyer sentiment.

On the whole, Colliers International Research is expecting the Perth CBD office market to remain resilient and net absorption to reduce due to low supply and the large amount of pent-up demand mostly satisfied through delvivery of Bankwest Place and Brookfield Place. The IMF has recently confirmed the Federal Government’s sentiment regarding the national economy, saying that it believes Australia is one of the best-positioned of the developed countries to weather further deterioration in the global economy.

collIeRs InteRnatIonal

Level 19,140 St Georges TerracePERTH, WA, 6000tel 08 9261 6666FaX 08 9261 6611

ReseaRcheR

Michael KnightManager- Research and Urban Economicstel 08 9261 6675FaX 08 9261 6688

Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections.

Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. COPYRIGHT - Colliers International 2012.

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Perth cbd office market research forecast report h2 2012 final